Torrent Pharma Q1FY16: IndiaNivesh maintain 'buy' for an upgraded price target
Prabhudas lilladher techmahindra_29june_2015
1. Tech Mahindra
Weak Q1FY16 outlook, Expect ‘Slow & Steady’ recovery
June 29, 2015
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EventUpdate
Shashi Bhusan
shashibhusan@plindia.com
+91-22-66322300
Hussain Kagzi
hussainkagzi@plindia.com
+91-22-66322242
Rating BUY
Price Rs483
Target Price Rs640
Implied Upside 32.5%
Sensex 27,645
Nifty 8,318
(Prices as on June 29, 2015)
Trading data
Market Cap. (Rs bn) 464.4
Shares o/s (m) 960.8
3M Avg. Daily value (Rs m) 4127.6
Major shareholders
Promoters 36.74%
Foreign 38.11%
Domestic Inst. 11.42%
Public & Other 13.73%
Stock Performance
(%) 1M 6M 12M
Absolute (12.8) (25.3) (9.0)
Relative (12.2) (26.3) (19.2)
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2016 27.4 33.5 -18.4
2017 33.9 41.1 -17.4
Price Performance (RIC:TEML.BO,BB:TECHM IN)
Source: Bloomberg
0
100
200
300
400
500
600
700
800
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
(Rs)
Tech Mahindra came out with an investor release highlighting the Q1FY16 and FY16
outlook. Management indicated marginal revenue decline with sustained pressure
on margin in Q1FY16. However, outlook for FY16 for Enterprise Business continues
to be optimistic. We continue to expect “Slow and Steady” improvement in the
underlying business. We expect softness in near term, but retain our “BUY” rating as
we continue to believe in their long-term structural growth outlook.
Q1FY16 – Weak revenue and margin outlook: Tech Mahindra expects marginal
decline in revenue overall revenue due to drag from Communication business
and seasonality in IP revenue. Moreover, full integration impact of LCC and
SOFGEN, H-1B visa cost (100-125bp), and lower IP revenue would drag EBIDTA
margin. We expected ~US$18m contribution from LCC and SOFGEN during the
quarter. Nevertheless, we now expect ~0.5% QoQ decline in USD term revenue
with margin erosion of ~60bp in Q1FY16.
Challenges in Communication business to persist; Enterprise a bright spot: In-
line with the concerns highlighted in our note (dated 27th
May), Management
expects subdued organic growth for FY16 in Communications business due to
delayed decision making. However, Enterprise business is expected to grow in-
line or above Industry average. We expect ~11% YoY revenue growth in USD
term in FY16. Moreover, we expect revenue momentum to pick-up in H2FY16.
Focus on Margin improvement: TechM’s EBITDA Margin was impacted due to
multiple reasons 1) Integration of large acquisition like LCC and SOFGEN (both
had high single digit margin) 2) Wage cost 3) Visa Cost 4) Lower IP revenue.
However, we see some of these costs will get absorbed over the course of the
year (FY16). Moreover, favourable currency movement, utilization
improvement, and automation could provide tailwind for Margin in FY16. We
expect margins to bottom out in H1FY16 and show improvement from thereon.
Outlook & Valuation – Retain “BUY” with a revised TP to Rs640: We expect
earnings to bottom in Q2FY16. We revise our estimates down for FY16/17, and
expect near term pressure on the stock price. Revised TP of Rs640 (from Rs710).
:Key financials (Y/e March) 2014 2015 2016E 2017E
Revenues (Rs m) 188,314 226,213 259,544 299,779
Growth (%) 31.4 20.1 14.7 15.5
EBITDA (Rs m) 41,837 41,528 40,470 49,705
PAT (Rs m) 29,087 26,273 26,285 32,569
EPS (Rs) 31.1 27.3 27.4 33.9
Growth (%) (24.6) (12.2) — 23.9
Net DPS (Rs) 5.0 6.0 7.5 7.5
Profitability & Valuation 2014 2015 2016E 2017E
EBITDA margin (%) 22.2 18.4 15.6 16.6
RoE (%) 39.8 24.5 19.9 21.2
RoCE (%) 32.5 20.5 16.9 18.4
EV / sales (x) 2.2 2.0 1.7 1.4
EV / EBITDA (x) 10.0 10.8 11.0 8.7
PE (x) 15.5 17.7 17.7 14.3
P / BV (x) 4.9 3.8 3.3 2.8
Net dividend yield (%) 1.0 1.2 1.5 1.5
Source: Company Data; PL Research
3. June 29, 2015 3
Tech Mahindra
Income Statement (Rs m)
Y/e March 2014 2015 2016E 2017E
Net Revenue 188,314 226,213 259,544 299,779
Raw Material Expenses 117,001 151,578 181,477 207,189
Gross Profit 71,313 74,635 78,067 92,590
Employee Cost — — — —
Other Expenses 29,476 33,107 37,596 42,885
EBITDA 41,837 41,528 40,470 49,705
Depr. & Amortization 5,222 6,114 7,057 8,009
Net Interest 798 299 498 498
Other Income 1,130 1,064 2,367 2,519
Profit before Tax 36,947 36,179 35,281 43,717
Total Tax 7,524 9,596 8,997 11,148
Profit after Tax 29,423 26,583 26,285 32,569
Ex-Od items / Min. Int. 2,736 312 — —
Adj. PAT 29,087 26,273 26,285 32,569
Avg. Shares O/S (m) 934.0 960.8 960.8 960.8
EPS (Rs.) 31.1 27.3 27.4 33.9
Cash Flow Abstract (Rs m)
Y/e March 2014 2015 2016E 2017E
C/F from Operations 15,929 23,165 22,847 32,806
C/F from Investing (4,637) (7,162) (10,382) (11,991)
C/F from Financing (8,749) (7,260) 2,431 (8,379)
Inc. / Dec. in Cash 2,543 8,743 14,896 12,436
Opening Cash 28,003 14,519 12,060 26,956
Closing Cash 27,797 12,060 26,956 39,392
FCFF (14,466) 5,850 12,465 20,815
FCFE (24,746) 12,072 12,465 20,815
Key Financial Metrics
Y/e March 2014 2015 2016E 2017E
Growth
Revenue (%) 31.4 20.1 14.7 15.5
EBITDA (%) 36.6 (0.7) (2.5) 22.8
PAT (%) 37.5 (9.7) — 23.9
EPS (%) (24.6) (12.2) — 23.9
Profitability
EBITDA Margin (%) 22.2 18.4 15.6 16.6
PAT Margin (%) 15.4 11.6 10.1 10.9
RoCE (%) 32.5 20.5 16.9 18.4
RoE (%) 39.8 24.5 19.9 21.2
Balance Sheet
Net Debt : Equity (0.4) (0.1) (0.1) (0.2)
Net Wrkng Cap. (days) 39 35 43 42
Valuation
PER (x) 15.5 17.7 17.7 14.3
P / B (x) 4.9 3.8 3.3 2.8
EV / EBITDA (x) 10.0 10.8 11.0 8.7
EV / Sales (x) 2.2 2.0 1.7 1.4
Earnings Quality
Eff. Tax Rate 20.4 26.5 25.5 25.5
Other Inc / PBT 3.1 2.9 6.7 5.8
Eff. Depr. Rate (%) 10.7 10.2 10.0 9.7
FCFE / PAT (85.1) 45.9 47.4 63.9
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2014 2015 2016E 2017E
Shareholder's Funds 91,820 122,489 141,592 165,782
Total Debt 524 6,746 6,746 6,746
Other Liabilities 21,637 18,446 18,446 18,446
Total Liabilities 113,981 147,681 166,784 190,974
Net Fixed Assets 22,966 28,723 34,423 38,406
Goodwill 5,640 17,283 17,283 17,283
Investments 14,719 21,028 21,028 21,028
Net Current Assets 57,532 63,685 77,087 97,295
Cash & Equivalents 33,202 24,049 26,956 39,392
Other Current Assets 69,745 90,436 103,462 119,501
Current Liabilities 45,415 50,800 53,331 61,598
Other Assets 13,124 16,962 16,962 16,962
Total Assets 113,981 147,681 166,784 190,974
Quarterly Financials (Rs m)
Y/e March Q1FY15 Q2FY15 Q3FY15 Q4FY15
Net Revenue 51,215 54,879 57,517 61,168
EBITDA 9,284 10,973 11,601 9,286
% of revenue 18.1 20.0 20.2 15.2
Depr. & Amortization 1,492 1,425 1,441 1,721
Net Interest 41 41 38 177
Other Income 893 576 190 (653)
Profit before Tax 8,644 10,083 10,312 6,735
Total Tax 2,308 2,807 2,512 1,845
Profit after Tax 6,307 7,196 8,054 4,721
Adj. PAT 6,307 7,196 7,769 4,720
Key Operating Metrics
Y/e March 2014 2015 2016E 2017E
Volume (persons months) — — — —
Realization (US$ / Hr) — — — —
Currency (USDINR) 60 61 64 63
SW Devp. Cost (% of Sales) 62.1 67.0 69.9 69.1
SG&A (% of sales) 15.7 14.6 14.5 14.3
Revenue (US$ m) 3,098 3,686 4,087 4,758
EBITDA Margin Expansion/(Erosion) (bps) 84.4 (385.9) (276.5) 98.8
Tax Rate (%) 20 27 26 26
Source: Company Data, PL Research.
4. June 29, 2015 4
Tech Mahindra
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Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
42.9%
39.8%
17.3%
0.0%
0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
%ofTotalCoverage
BUY : Over 15% Outperformance to Sensex over 12-months
Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months
Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month
Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
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